The IRS limits how much you can contribute to your Individual Retirement Account (IRA) each year. In general, investors under the age of 50 may contribute up to $6,500 to a Roth IRA or traditional IRA during the 2023 tax year. Investors 50 and older can make an annual catch-up contribution of $1,000, making their yearly contribution limit $7,500.
However, unlike traditional IRAs, the Roth IRA is subject to an annual income limit and other factors that may impact the amount you can contribute or your ability to contribute at all. Knowing your contribution limit is important, as you can incur penalties if you contribute more to your Roth IRA than is allowed based on your income and filing status. Currently, the IRS charges a 6% excise tax for every year a contribution that exceeds the limit stays in your account.
Factors that affect your contribution limit
Things like age, annual income, and tax filing status affect IRA contribution limits. Roth IRAs are subject to more potential limitations on contributions than traditional IRAs.
- Age: Anyone with taxable earned income is eligible to contribute to a traditional or Roth IRA, regardless of age. Investors under the age of 50 may contribute up to the annual limit, and investors over 50 may put in an additional $1,000 catch-up contribution each year.
- Modified adjusted gross income: If you have a Roth IRA, your modified adjusted gross income (MAGI) affects your contribution limit. Your MAGI is your total gross earned income minus some specific deductions. For single tax filers in 2023, if your MAGI is less than $138,000 and you meet certain IRS filing status requirements, you can contribute up to the annual limit to your Roth IRA. Higher or lower MAGIs, in conjunction with tax filing status, may reduce or zero out the amount you’re allowed to contribute. If you have a traditional IRA, your MAGI does not affect your contribution limit.
- Filing status: Your tax filing status is also a factor in your contribution limit for a Roth IRA, but not a traditional IRA. If you are single or married and filing jointly and within the MAGI limits, you may contribute up to the annual limit for your Roth IRA. Some other filing statuses may reduce or zero out the amount you’re allowed to contribute, depending on your MAGI.
Contributions to other IRAs: While you can have both a traditional IRA and a Roth IRA simultaneously, the contribution limits apply to your combined IRA contributions. For example, if you are eligible to contribute $6,500 for 2023, that’s the total amount you can contribute to all your IRAs combined; you cannot contribute $6,500 to a traditional IRA and another $6,500 to a Roth IRA.
Calculating your modified adjusted gross income
Calculating your MAGI may seem a little complicated, so here’s a quick rundown. First, you should calculate your annual adjusted gross income (AGI), which encompasses all your earned income for the year, including wages, tips, royalties, alimony, retirement income, business income, interest, capital gains, and dividends, minus certain tax-deductible expenses.
Once you’ve calculated all of your earnings for the year, you will subtract applicable business expenses, retirement plan contributions, student loan interest payments, educator expenses, HSA contributions, and other allowed deductions. This is your AGI.
To calculate your MAGI, start with your AGI, then add back the deductions specific to your situation outlined by the IRS. The IRS provides a handy worksheet for calculating your MAGI, and you’ll just need info from your tax documents to fill it out.
Roth IRA contribution limits by filing status
The IRS adjusted traditional IRA contribution limits for 2023, increasing the annual limit to $6,500 for investors under 50 and $7,500 for investors 50 and older. However, contribution limits vary according to tax filing status and MAGI.
Single, head of household
You can choose single filing status if you’re not legally married. And, If you meet certain conditions, you may also choose to file your taxes as head of household. To claim head of household status, you must be legally single or living apart from your spouse for the last six months of the year, pay more than half of household expenses, and have either a qualified dependent living with you for at least half the year or a parent for whom you pay more than half their living expenses.
Single or head of household filers with a MAGI of less than $138,000 may contribute up to the yearly limit for a Roth IRA. Those who earn more than $138,000 but less than $153,000 may contribute a reduced amount, and those earning more than $153,000 are not eligible to contribute to a Roth IRA. These limits also apply to those filing as a qualifying widow(er).
| Modified adjusted gross income (MAGI) | Contribution limit |
|---|---|
| Modified adjusted gross income (MAGI) | Contribution limit |
| < $138,000 | $6,500 |
| > $138,000 but < $153,000 | Reduced contribution |
| > $153,000 | Not eligible |
Married and filing jointly
Filing jointly means that you and the person to whom you are legally married file a single tax return that includes all income and deductions for both people. If your joint MAGI is less than $218,000, each spouse may contribute up to the limit to Roth IRAs. Your contribution limit will be reduced if your joint MAGI falls between $218,000 and $228,000. Neither of you will be eligible to contribute if your joint MAGI exceeds $228,000 annually.
| Modified adjusted gross income (MAGI) | Contribution limit |
|---|---|
| < $218,000 | $6,500 |
| > $218,000 but < $228,000 | Reduced contribution |
| > $228,000 | Not eligible |
Married and filing separately
If you’re married filing separately, you and your spouse each file your own tax return. This requires separating your income and deductions. In this case, your contribution limit will be reduced, and you won’t be able to contribute at all if your MAGI is over $10,000.
| Modified adjusted gross income (MAGI) | Contribution limit |
|---|---|
| < $10,000 | Reduced contribution |
| ≥ $10,000 | Not eligible |
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Traditional IRA deduction limits by filing status
Contribution limits for traditional IRAs in 2023 are the same as those for Roth IRAs: $6,500 if you’re under 50 and $7,500 if you’re 50 or older. However, your MAGI and tax filing status don’t come into play when determining your contribution limit for a traditional IRA.
Deduction limits are a bit more complicated. Unlike with a Roth IRA, you can usually deduct some or all of your traditional IRA contributions from your taxable income for the year. If neither you nor your spouse have an employer-sponsored retirement plan, like a 401(k), you can take a full deduction up to your contribution limit. If you do have an employer-sponsored plan, however, the IRS imposes some limitations based on your MAGI and tax filing status. The tables below reflect traditional IRA deduction limits for 2023 if you or your spouse has a 401(k) or other employer-sponsored retirement plan.
Single, head of household
Single or head of household filers with a MAGI of $73,000 or less may take the full deduction, but those who earn $83,000 or more are not eligible.
| Modified adjusted gross income (MAGI) | Deduction limit |
|---|---|
| $73,000 or less | full deduction up to the amount of your contribution limit |
| > $73,000 but < $83,000 | partial deduction |
| > $83,000 | no deduction |
Married and filing jointly
If your combined MAGI is $116,000 or less, you may take the full deduction up to the amount of your contribution limit. Couples with a MAGI higher than $136,000 are not eligible for a deduction.
| Modified adjusted gross income (MAGI) | Deduction limit |
|---|---|
| < $116,000 | full deduction up to the amount of your contribution limit |
| > $116,000 but < $136,000 | partial deduction |
| > $136,000 | no deduction |
Married and filing separately
If you and your spouse are married and filing separate tax returns, your deduction limit will be reduced. Filers with a MAGI of less than $10,000 are eligible for a partial deduction, while those earning $10,000 or more are not eligible.
| Modified adjusted gross income (MAGI) | Deduction limit |
|---|---|
| < $10,000 | partial deduction |
| ≥ $10,000 | no deduction |
It’s never too early to think about retirement
Whether you choose a Roth IRA, a traditional IRA, or another type of retirement savings account, it’s never too early to start investing. The longer your money is invested, the more time it has to grow. Factors like inflation and penalties for early withdrawal may affect your retirement account balances over the years, so it’s wise to research all your options.
You don’t have to choose just one way to save for retirement, either. Remember that you can have more than one IRA, as well as an employer-sponsored retirement plan like a 401(k), all at the same time. In fact, many people choose to contribute to both a 401(k) and an IRA in order to put away more money than IRA contribution limits allow.
Stash can help you prepare for retirement your way with both Roth and traditional IRA investment options. Start planning for your financial future today.
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